• Demographic segmentation
  • Socio-economic segmentation
  • Geographic segmentation
Complete information about profile variables in marketing

This category includes a range of demographic, socio-economic and geographic segmentation variables.

Demographic segmentation (Population Division)

Key demographic variables include age, gender, and family life cycle:

Age: Consumer buying decisions will vary with age. Older people are more likely to seek out different vacation benefits than younger people. However age by itself may not be a sophisticated variable to help identify customer segments. Fuzzy grouping is created to identify consumer groups using individuals in the age group of 25-35 years. Women aged 25-35 will have different needs than men aged 25-35 in some markets. A 30-year-old woman who is single and has a professional job. 30-year-old women who are married with three children and choose not to work outside the home may have different needs. Both requirements will be different for a 30-year-old unemployed woman who is single with one child.

The issue of psychological age is also considered when using this variable. That is, consumers may perceive themselves to be of a different age than their true chronological age. So a product or service aimed at 35-year-olds may appeal to older consumers who still see themselves in this age range. Age alone therefore has limitations as a method of segmenting the market into useful segments.

Gender: Age has the same limitations as gender variable. So it is clear that there are differences between consumer groups based on gender. However this variable itself undervalues the market by 50 percent. There are still large differences in the gender category. Older women may have different needs compared to younger women. Cadbury's, while designing a box of chocolates called Inspirations aimed at the female market, found that older women did not like the contemporary design used on the prototype, however younger women liked the modern packaging.

Obviously age and gender variables can be used to help define segments. So we can define the segment in terms of women aged 25 to 35 or men aged 55 to 65. However this still gives a very broad consumer group that does not take into account the broader factors that may influence consumers in these particular age and gender groups. One way to try to overcome these shortcomings is to look at the customer life cycle.

Life cycle segmentation: The essence of the family life cycle is that consumers are likely to go through one of the alternative paths in the life cycle. The classic path would be for customers to go from being young and single to young married without children, married young with children, married middle-aged with children, married middle-aged with children, married middle-aged without dependent children, married old, eventually.

At each stage the consumer's needs and disposable income will change. Anyone who is young and single has very few commitments so even though their real income is low, their disposable income is high. Once a person is married with children, the commitment increases. They are more likely to venture into the housing market and are now buying products for baby boys and girls. The couple should start saving and taking an insurance policy to protect their children's future. In middle age they will be more interested in pension system. Naturally, as a person progresses through these stages, their propensity to purchase certain types of products will change. Hence this approach is useful for identifying these customer groups. There is speculation that the importance of the family as a unit is diminishing in Western cultures, however there is conflicting evidence on the matter. A 1985 report by the Center for Family Policy Studies, looking at the UK, claimed that:

1) Nine out of ten people will get married at some point in their lives.

2) Nine out of ten married couples will have children.

3) Two out of every three marriages are more likely to end in death than divorce.

4) Eight out of ten of those people remain stable in households headed by a married couple.

However, there was one important change from previous studies. There was an increasing tendency among individuals to pass through the cycle of more than one family group. Individuals were divorcing and remarrying. Therefore, both parents in a family group cannot be blood relatives of the children. Also, siblings may not be blood relatives. From a marketer's perspective it is the fact that the family group is still a prominent feature of society that is important. So these family life cycle stages are still relevant for segmentation purposes.

Another trend identified after Lawson's analysis of demographic trends in the UK is a change in both the length and importance of the stages.

Complete nestling periods when young remain with their parents are shorter because couples have fewer children and these children are born closer together. This means that individuals spend more time among bachelors and empty nesters, and there are more people in these groups.

As a result of this study, Lawson updated the family life cycle using the 1981 census, claiming that this modern version covers more than 80% of the population.

18.69 percent of the households in this census are young people living in joint families, households with residents other than the family and households with more than one family.

A sample example 1

Sky TV

In 2004 7.4 million households contracted SKY for its subscription television channels, accounting for 43 per cent of the UK market. By 2010, SKY aims to increase this number to 10 million households. SKY's management believed that no home was beyond their reach. To achieve their objective SKY embarked on a comprehensive market research exercise to ascertain consumer perceptions of their product offering to develop targeted marketing campaigns to overcome consumer reluctance to subscribe to their channels. An interesting feature of the SKY subscriber profile is that only 21 per cent of households that bought an independent newspaper had a SKY contract. This percentage was lower than any other group of national newspaper readers.

Indeed families can be a useful way of looking at social grouping. Individuals sharing a flat have to participate in group decision making for products like furniture, electrical appliances etc. Lawson claims that when discussing the 18.69 percent of the population that does not fit into the family life cycle, it is likely that families are a better unit for analyzing consumer behavior than families.

Socio economic segmentation

Socioeconomic segmentation uses factors such as occupation, income, educational background, and place of residence to classify individuals into larger social class groups.

The JICNARS Classification of Social Class is a common tool for classifying a person's social class. The JICNARS approach relies heavily on income and occupation as its six major social groups are used to define.

It is a traditional type of socioeconomic classification system that has been used for censuses since 1911. The Office for National Statistics, however, plans to use the new classification system for the 2001 census. This is the result of major changes in population make. Currently, 60 percent of the population is considered middle class compared to 51 percent in 1984. The new categories also take into account the increased role of women in the workplace who now occupy 18 percent of all professional positions. Under the new system women will be classified in their own right rather than by their husband's occupation. The new classification was based on a survey of 65,000 people in 371 occupations.

Despite this new classification, socioeconomic approaches to segmentation still have several problems for marketing managers:

  • Social class is not an accurate measure of disposable income. An electrician or plumber classified as social class C2 may earn more than a junior manager who would be classified as social class C1.
  • Women tend to work in western society. Social classification uses the head of household to define social class. Defining the head of household becomes more difficult if both adults are working. We also saw at the beginning of this article that family structures have become more complex in the West. The new taxonomy tries to solve this problem but how does the new taxonomy help in predicting family buying behavior? Individuals from the same household may belong to two completely different social classes.
  • The diversity and changing nature of people's occupations makes it more difficult to consistently apply social class categories.

More importantly, social class is a less important predictor of behavior in today's society than other methods of segmentation. For example a person regardless of social class who is interested in sports is more likely to buy products and services in the field of sports than someone from the same social class who is not interested in sports. This is why it may be more important for marketers to identify individuals with common interests than to identify social class groups.

A sample example 2

Divine Chocolate Ltd

In 2006 consumers spent £290 million on Fairtrade products, a 46 per cent increase in sales in 2005 which itself was up 40 per cent on the previous year. In 2007 there were over 2500 products available on the UK market bearing the Fairtrade logo. The market for Fairtrade chocolate and cocoa products has also seen a huge increase in sales over the past 5 years. This is a market segment in which Divine Chocolate Ltd has become the leading company developing its own Divine brand label. Divine Chocolate Ltd also supplies the Co-op with its own brand of chocolate and much of the company's success is due to this relationship. The company had sales of £9 million in 2006 and represents a very small percentage of the overall chocolate market. However Divine Chocolate Ltd is able to operate in a high growth segment with limited direct competition by focusing on this specialist market. This is also against the backdrop of an overall chocolate market that is maturing and showing signs of slowing growth.

In October 2006 Divine Chocolate Ltd expanded its operations by opening a new US operation based in Washington with the aim of bringing Fairtrade chocolate to US consumers.

Geographical division

Geographical: This variable was used extensively in the past. There used to be clear consumer patterns across the country in manufacturing sectors such as food and alcohol, or even within the country's major markets. Although some of these patterns are still evident, widespread access to mass communication and travel has tended to reduce these regional differences. Individuals are eating a much more global diet than they were 30 years ago. Pizza and pasta are common dishes in many households. Where geographic variables are used they are used to reflect some broad cultural differences between markets. However geographic variables can be useful when used in conjunction with other factors.

Geodemographics: Geodemographic Segmentation combines household location information with specific demographic and socioeconomic data.

This approach relies on the information collected in the census returns. In the UK, census information on family size, household size, occupation and ethnic origin can be used to group residential housing into geographical areas that exhibit similar profiles. There are many geographical types of classification. The most famous in the UK is ACORN, the classification of residential neighbourhoods. The ACORN classification identifies six major categories that can be further divided into seventeen groups.

These seventeen groups can be further divided into twenty-four neighborhood types. For example, ACORN Category C (Rising), Group 7 (Affluent Professional, Metropolitan Area) is composed of two neighborhood types. One of these neighborhood types is 19 which is categorized as apartments, young professional singles and couples. These types of neighborhoods are highly concentrated in London. Outside London these neighborhoods are found in places like Edinburgh, St Albans and Cambridge.

These neighborhoods allow specific patterns of use to be identified. For example ACORN Type 5 Mature, Well of Suburbs is a subgroup of Category A, Group 1 is Wealthy Achievers, Suburban Areas. This group is made up of mature suburbs found across the country, particularly in Surrey, Hertfordshire, South Glamorgan and Outer London. Individuals in this group purchase above average levels of fresh and dried pasta, ground coffee, fresh fish and fruit. Ownership of most financial products in this group, except personal pensions, is higher than the national average. Such detailed profiles allow highly sophisticated targeting.

This segmentation approach can be used to aid decision making in various areas:

  • Identifying suitable retail locations for specific retail formats.
  • A specific mix of products and services delivered to a specific retail location.
  • Decisions on direct mail campaigns.
  • Boundaries of specific sales territories.
  • Location of poster sites.
  • Choice of media.

This method is being criticized. It is claimed that all these geodemographic systems have inaccuracies because of difficulties in linking census enumeration districts with postal codes. There are also problems with reflecting changes in households between each census.

The geographical systems referred to so far are used at a relatively local level. There have been some developments to apply this approach on a larger regional scale. Geodemographic techniques have been used to identify consumers with common characteristics on a European scale but living in different countries. Using demographic age, economic income, geographic longitude, cultural language and latitude factors, six Euro consumer segments can be identified.

This approach explains that consumers from different countries may share similar characteristics. For example, consumers in segment 4 show more similarity to each other than to other consumers in their own country. This is the first step in the division of Europe. This allows the identification of sub-segments within these larger groups and gives marketers the ability to target relatively large geographic segments that transcend national boundaries.

Finance

Time management

Marketing

Leadership 

Economic